Trump's Child Care plan (and I use the term loosely)
Donald Trump has revealed the details of the child care and maternity leave plan he described in a speech. At first it sounds great. "The Trump plan will exclude childcare costs from the income tax from
birth to age 13, the period where children need supervised care, and
will include adoptive parents as well as foster parents who are legal
guardians of the child."
The current Child and Dependent Care Credit is available for parents from birth to age 13. It includes adoptive and foster parents who are legal guardians. So far nothing new.
His plan goes on to say "The exclusion would apply to a variety of different kinds of childcare—institutional, private, nursery school, afterschool care, and enrichment activities—affording choice to parents. The deduction would be limited to the average cost of childcare in the state of residence for the age of the child"
Costs that vary greatly. According to a 2014 piece in the Boston Globe, the average annual cost for full-time newborn infant care ranges from a high of $21,948 in Washington, D.C. to a low of $4,863 in Mississippi. The Center for American Progress said that in 2010 the percentage of household income that went to childcare for families where all children are five or younger is 10.7%. So in order to afford the cost of full-time newborn care in D.C., a family has to have a household income of over $205,000 to afford that care. For the family in Mississippi, their income needs to be just under $45,500.
Under the current Child and Dependent Care credit, the D.C. family would be able to take a direct credit against their income tax of $600, based on the maximum amount of expenses allowed (which is $3,000). What's interesting is that this is the same amount of direct credit that the family in MS would get.
Under Trump's plan, the family in MS would get 15% of $4,863 or $729. A slight improvement. But the family in DC would save 25% (or more) of that $21.948 or $3,292. As with anything else Trump is talking about, the more well off you are, the more you benefit.
The current credit requires that in a two parent household, both parents be working, seeking work, be full-time students or be disabled. Under Trump's plan, the credit would be given to households where one or both parents are stay-at-home parents. The lower the family income the less likely that a parent can stay at home to care for a child. Again, benefiting people with higher incomes.
Trump's plan also provides for benefits for eldercare in the home with a maximum amount of $5,000 being excluded from taxation. That is only an increase of $2,000 over the current allowable expense limit, and since it will be an above the line deduction, it could be worth more...or less than the current credit. The higher the household income, the more valuable that credit would be.
The Trump Plan includes the following statement, "While an above-the-line deduction is a significant tax benefit, it may not provide sufficient relief to the lowest-earning taxpayers. To get real benefits to lower-income taxpayers who can't use the exclusion against the income tax because they have no income tax liability, the Trump plan would also provide them a boost in the Earned Income Tax Credit (EITC). This boost would be half of the payroll taxes paid by the lower earning parent, and would be subject to an income limitation of $31,200"
Misleading as all heck. According to IRS Publication 596, a two-parent family with two children can earn no more than $47,600 to get an EITC credit of $500. The lower salary if both parents work would have to be less than $23,800. The value of this "enhanced" EITC is far less than the maximum of $1,200 claimed by the Trump Plan document.
I could go on exposing the fallacies of his plan but see no need to go further. That's because all of these things will reduce current tax revenues when we are already running budget deficits. Trump claims that the savings his changes to unemployment will generate is ridiculous.
Typical Trump. Bait and switch. Promises he can't deliver on.
The current Child and Dependent Care Credit is available for parents from birth to age 13. It includes adoptive and foster parents who are legal guardians. So far nothing new.
His plan goes on to say "The exclusion would apply to a variety of different kinds of childcare—institutional, private, nursery school, afterschool care, and enrichment activities—affording choice to parents. The deduction would be limited to the average cost of childcare in the state of residence for the age of the child"
Costs that vary greatly. According to a 2014 piece in the Boston Globe, the average annual cost for full-time newborn infant care ranges from a high of $21,948 in Washington, D.C. to a low of $4,863 in Mississippi. The Center for American Progress said that in 2010 the percentage of household income that went to childcare for families where all children are five or younger is 10.7%. So in order to afford the cost of full-time newborn care in D.C., a family has to have a household income of over $205,000 to afford that care. For the family in Mississippi, their income needs to be just under $45,500.
Under the current Child and Dependent Care credit, the D.C. family would be able to take a direct credit against their income tax of $600, based on the maximum amount of expenses allowed (which is $3,000). What's interesting is that this is the same amount of direct credit that the family in MS would get.
Under Trump's plan, the family in MS would get 15% of $4,863 or $729. A slight improvement. But the family in DC would save 25% (or more) of that $21.948 or $3,292. As with anything else Trump is talking about, the more well off you are, the more you benefit.
The current credit requires that in a two parent household, both parents be working, seeking work, be full-time students or be disabled. Under Trump's plan, the credit would be given to households where one or both parents are stay-at-home parents. The lower the family income the less likely that a parent can stay at home to care for a child. Again, benefiting people with higher incomes.
Trump's plan also provides for benefits for eldercare in the home with a maximum amount of $5,000 being excluded from taxation. That is only an increase of $2,000 over the current allowable expense limit, and since it will be an above the line deduction, it could be worth more...or less than the current credit. The higher the household income, the more valuable that credit would be.
The Trump Plan includes the following statement, "While an above-the-line deduction is a significant tax benefit, it may not provide sufficient relief to the lowest-earning taxpayers. To get real benefits to lower-income taxpayers who can't use the exclusion against the income tax because they have no income tax liability, the Trump plan would also provide them a boost in the Earned Income Tax Credit (EITC). This boost would be half of the payroll taxes paid by the lower earning parent, and would be subject to an income limitation of $31,200"
Misleading as all heck. According to IRS Publication 596, a two-parent family with two children can earn no more than $47,600 to get an EITC credit of $500. The lower salary if both parents work would have to be less than $23,800. The value of this "enhanced" EITC is far less than the maximum of $1,200 claimed by the Trump Plan document.
I could go on exposing the fallacies of his plan but see no need to go further. That's because all of these things will reduce current tax revenues when we are already running budget deficits. Trump claims that the savings his changes to unemployment will generate is ridiculous.
Typical Trump. Bait and switch. Promises he can't deliver on.
posted by me at 9:09 PM
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